Why Intel spent record $7.5 billion for new generation fabs

6. Intel may be pursuing a "go for broke" strategy that's aimed at taking an even bigger share of the global chip market. While the rest of the semiconductor industry was "zigging," the world's biggest chip maker was "zagging" by building a lot more new fabs with state-of-the-art processes in 2001.

In mid-January, Intel shocked Wall Street and capital equipment suppliers by setting plans for a record $7.5 billion of capital spending in 2001. Not only was this up to $3.5 billion more than analysts were expecting, but also it was announced just as the chip business was falling into the worst semiconductor downturn ever.

These big spending plans followed another huge investment by Intel in 2000, when it spent $6.7 billion--a 97% increase over 1999 expenditures. To put this huge amount in more perspective, Intel's capital spending this year represented nearly one-fifth of the entire global chip industry's capital spending of $42 billion.

Even after Intel announced its record spending plan, analysts didn't believe it and kept waiting for the chip giant to capitulate as the semiconductor industry slipped into a deep recession. But CEO Craig Barrett insisted this budget would not be cut--even after world's largest chip company revealed it was cutting 5,000 jobs, or 5.7% of its workforce, by the end of 2001.

While some industry observers viewed Intel's 2001 capital spending plan as a sign of arrogance or stubbornness, the Santa Clara, Calif., company saw it as an opportunity to distance itself from competitors such Advanced Micro Devices, which has not even revealed its 300-mm wafer fab plans.

The massive spending plan definitely was a big gamble, but it appeared to be paying off as Intel readies several 300-mm fabs for production and six plants for new 0.13-micron process technologies over the next 12-to-15 months.

"We did spend $7.5 billion this year," confirmed Intel chief financial officer Andy Bryant in December. Much of the investment, he said, was spent on 300-mm frontend processing lines, which will begin to come online in the first quarter of 2002. He said the record spending was necessary because Intel's logic capacity was running nearly at capacity by the end of 2001, and the company was unable to meet the demand for Pentium 4 processors.

At year-end, the semiconductor industry was waiting to see what Intel would do in its next capital spending budget, which will be revealed in mid-January. Analysts predicted Intel's 2002 capital spending plan will total somewhere between $4.5 billion and $7 billion. What is certain, however, is that the chip giant will greatly outspend its nearest rivals in 2002.